* What: India's July industrial output
* When: Friday midday (0630 GMT)
* Forecast: Annual 6.8 pct rise
By Rajkumar Ray
NEW DELHI, Sept 10 (Reuters) - India's industrial output probably rose in July on consumer demand and government stimulus spending, but the pace slackened from June because of a drop in refinery output and as rural demand was dampened after the worst dry spell in nearly four decades.
The median forecast in a Reuters poll of 12 analysts on Thursday was for an annual rise of 6.8 percent in production, lower than a provisional 7.8 percent rise in June.
Trade Minister Anand Sharma said last month industrial output may have grown an annual 7 percent in July, but some analysts said the pace of expansion may have been slower as infrastructure industries expanded by just 1.8 percent.
"There is some improvement in manufacturing especially interest rate sensitive sectors like automobiles. The government's stimulus spending has already come into play," said D.K. Joshi, principal economist with rating agency Crisil.
Last year, factory output in Asia's third-largest economy was hit after the financial crisis dented demand. Output grew just 2.6 percent in 2008/09 fiscal year ended March from 8.5 percent in 2007/08.
A series of interest rate cuts since last October backed by tax cuts and higher spending revived demand and helped the industry expand 3.7 percent in the June quarter.
POCKETS OF PROSPERITY
In its July budget, the government announced a new dose of stimulus by stepping up spending by more than a third in 2009/10 to a record 10 trillion rupees ($205 billion) and offered tax relief to industry and infrastructure to propel growth.
But the weakest monsoon rains in nearly four decades have smothered crops, driven up food prices and choked demand from the almost 60 percent of the population living outside cities. India's population is 1.1 billion.
A survey of 500 companies showed manufacturing activity expanded at its slowest pace in five months in August as firms struggled to raise prices despite higher costs.
However, demand from urban consumers is on the rise with car sales climbing by more than a fourth in August, rising for the seventh month on cheaper borrowing costs and new models.
But a global slump continues to dent exports, which fell for the tenth month in July, hindering faster factory expansion.
While festival demand pushes up industrial growth between September and December, analysts say crop losses and lower spending by rural households could trim economic growth.
"It will depress the GDP growth in the December quarter and to some extent the industrial output also," said Crisil's Joshi.
Economic growth slowed to six-year low of 6.7 percent in 2008/09 from 9 percent or more in the previous three years.
The Planning Commission recently forecast 6.3 percent expansion for 2009/10, while the central bank estimates growth at 6 percent with an upward bias.
Forecasts for July industrial output: ------------------------------------------ RESPONDENT (Percentage change yr/yr) ------------------------------------------ Bank of Baroda 7.2 Reliance Equities 7.0 Kotak Mahindra Bank 7.0 Barclays Capital 7.0 Axis Bank 7.0 Yes Bank 6.9 Nomura 6.7 ICICI Securities Primary Dealership 6.1 Dun & Bradstreet 5.6 ICRA 5.5 Crisil 5.0 HDFC Bank 5.0 ------------------------------------------ Median 6.8 Average
6.3 Highest 7.2 Lowest 5.0 ------------------------------------------ ($1=48.5 rupees) (Editing by Ranjit Gangadharan & Jan Dahinten)